Portion of the 1996 Annual Report to Shareholders for the
year ended December 31, 1996 which is incorporated by           
reference in this filing on Form 10-K.           
           
           
    MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
       FINANCIAL CONDITION AND RESULTS OF OPERATIONS



    E'town Corporation (E'town or Corporation), a New Jersey
holding company, is the parent company of Elizabethtown Water
Company (Elizabethtown or Company), E'town Properties, Inc.
(Properties) and owner of a 65% interest in Applied Watershed
Management, LLC (AWM).  The Mount Holly Water Company (Mount
Holly) is a wholly owned subsidiary of Elizabethtown.  The
assets and operating results of Elizabethtown constitute the
predominant portions of E'town's assets and operating results. 
Mount Holly contributed 3% of the Company's consolidated
operating revenues for 1996.  The following analysis sets forth
significant events affecting the financial condition of E'town
and Elizabethtown at December 31, 1996, and the results of
operations for the years ended December 31, 1996 and 1995. 



LIQUIDITY AND CAPITAL RESOURCES

Capital Expenditures Program     

    Capital expenditures, primarily for water utility plant,
were $55.4 million during 1996. Of this total, $18.6 million,
excluding  an Allowance For Funds Used During Construction
(AFUDC), was expended on the Canal Road Water Treatment Plant
(Plant).  Capital expenditures for the three-year period ending
December 31, 1999 are estimated to be $126.1 million, of which
$125.3 million is for utility plant ($105.8 million for
Elizabethtown and $19.5 million for Mount Holly), and $.8
million is for non-utility expenditures.  

    The utilities' projected capital expenditures are returning
to the levels experienced in the early 1990s as Elizabethtown
has completed and placed the Plant into service as discussed
below. Mount Holly expects to incur significant capital
expenditures in 1997 and 1998 to construct new water supply,
treatment and transmission facilities as discussed below.



Elizabethtown

    The Plant was completed and placed into service on October
24, 1996. The Plant, which has an initial rated production
capacity of 40 million gallons per day (mgd), will meet existing
and anticipated customer demands and replace groundwater
supplies withdrawn from service as a result of more restrictive
water quality regulations and groundwater contamination.
Elizabethtown's three-year capital program includes $69.3
million for projects of a routine nature. This program also
includes $56.0 million of major projects such as new
transmission mains, improvements to pumping facilities,
construction of a new operations center in the western portion
of our service territory and other miscellaneous projects.



Mount Holly

    To ensure an adequate supply of quality water from an
aquifer serving parts of southern New Jersey, state legislation
requires Mount Holly, as well as other suppliers obtaining water
from designated portions of this aquifer, to reduce pumpage from
its wells.  Mount Holly has received approval from the New
Jersey Department of Environmental Protection (NJDEP) for its
plan to develop a new water supply, treatment and transmission
system necessary to obtain water outside the designated portion
of the aquifer, and to treat the water and pump it into the
Mount Holly system.  This is referred to as the Mansfield
Project.  The project is currently estimated to cost $16.5
million, excluding AFUDC, of which $13.6 million is anticipated
to be spent over the next three years. Mount Holly has expended
$2.9 million on the Mansfield Project as of December 31, 1996,
excluding AFUDC. The land for the supply and treatment
facilities has been purchased and wells have been drilled and
can produce the required supply. 

   On October 5, 1995, the NJDEP granted Mount Holly a water
allocation permit for four wells that are to be the water supply
for the Mansfield Project.  On October 20, 1995, another water
purveyor requested of the NJDEP, and was subsequently granted,
an adjudicatory hearing in opposition to the permit.  Hearings
on the matter before an administrative law judge are pending. A
decision is expected later in 1997. The Company and Mount Holly
believe that the permit in question will be upheld, but cannot
predict with certainty the outcome of the matter. In the event
that the objector is successful and the permit is rescinded,
Mount Holly would meet its regulatory obligation to provide an
alternate source of water by purchasing water from that
purveyor. Management believes the Mansfield Project is the most
cost-effective alternative available to Mount Holly to comply
with recent state legislation that restricts the amount of water
that can be withdrawn from the aquifer. 

   In June 1995, Mount Holly petitioned the New Jersey Board of
Public Utilities (BPU) for an increase in rates, to take place
in two phases. The first phase was necessary to recover costs
that were not reflected in rates last increased  in 1986. The
second phase would recover the cost of  the Mansfield project. 

  On January 24, 1996, the BPU approved a stipulation (Mount
Holly Stipulation) for an increase in rates of $.6 million,
effective as of that date. The Mount Holly Stipulation has,
effectively, concluded the first phase of the rate proceeding.

 

Capital Resources

    During 1996, Elizabethtown, including Mount Holly, financed
40.2% of its capital expenditures from internally generated
funds (after payment of common stock dividends). The balance was
financed with a combination of short-term borrowings under a
revolving credit agreement discussed below, proceeds from
capital  contributions from E'town (funded by issuances of
Common Stock under the Corporation's Dividend Reinvestment and
Stock Purchase Plan) and other short-term bank  borrowings. 

    For the three-year period ending December 31, 1999,
Elizabethtown, including Mount Holly, estimates that 57% of its
capital expenditures are expected to be financed with internally
generated funds (after payment of common stock dividends).  The
balance will be financed with a combination of proceeds from the
sale of E'town common stock, long-term debentures, proceeds of
tax-exempt New Jersey Economic Development Authority (NJEDA)
bonds and short-term borrowings. The NJEDA has granted
preliminary approval for the financing of almost all of
Elizabethtown's major projects during the next three years and
the Mansfield Project. Elizabethtown expects to pursue
tax-exempt financing to the extent that final allocations are
granted by the NJEDA. The Company's senior debt is currently
rated A3 and A by Moody's Investors Service and Standard &
Poor's Ratings Group, respectively. Standard & Poor's has
recently reaffirmed the Company's A rating and has upgraded its
rating oulook from "negative" to "stable."

    In the second quarter of 1997, Elizabethtown expects to
issue $50.0 million of  tax-exempt Variable Rate Demand Notes
through the New Jersey Economic Development Authority (NJEDA).
The proceeds of the issue are expected to be used to repay
amounts outstanding under the revolving credit agreement
discussed below.

    Elizabethtown continues to obtain a portion of the funds
required for its capital program through borrowings under a
revolving credit agreement (Agreement) with an agent bank and
five additional banks.  The Agreement  was executed in 1994 to
provide up to $60.0 million in revolving short-term financing to
partially fund Elizabethtown's capital program, the predominant
portion of which was the Plant. 

    The Agreement further provides that, among other covenants,
Elizabethtown must maintain a percentage of common and preferred
equity to total capitalization of not less than 35% and a
pre-tax interest coverage ratio of at least 1.5 to 1.  As of
December 31, 1996, the percentage of Elizabethtown's common and
preferred equity to total capitalization, as calculated in
accordance with Agreement, was 44%.  For 1996, Elizabethtown's
pre-tax interest coverage ratio, calculated in accordance with
the Agreement, was 2.7 to 1.  At December 31, 1996 Elizabethtown
had outstanding borrowings of $60.0 million under the Agreement
and $9.0 million of borrowings under uncommitted lines of
credit. The combined borrowings were at interest rates from
5.50% to 5.88% at a weighted average rate of 5.72%. The
Agreement expires in July 1997 and provides that the Company may
convert any outstanding balances to a five-year, fully
amortizing term loan. However, upon expiration of the Agreement,
the Company expects to meet its short-term financing needs with
uncommitted lines of credit.

 

RESULTS OF OPERATIONS   

    Net Income for 1996 was $15.1 million or $1.96 per share on
a primary basis as compared to $15.3 million or $2.16 per share
for 1995. The primary factor contributing to the decrease in net
income was a reduction in revenues due to reduced outdoor water
consumption in 1996 compared to 1995. In addition, an increase
in the average number of shares outstanding contributed to the
decrease in Earnings Per Share of Common Stock.

   Net income for 1995 was $15.3 million, or $2.16 per share, on
a primary basis, as compared to $12.1 million, or $1.95 per
share, for 1994.  The combined effect of a $5.3 million rate
increase in February 1995, increases in capitalized AFUDC in
1995 and a non-recurring charge in 1994 all contributed to the
increase in net income between 1994 and 1995.  Earnings Per
Share of Common Stock in 1995 were further affected by an
increase in outstanding shares.  

   Operating Revenues increased $2.0 million or 1.9% in 1996
over the comparable 1995 amount. The increase in total revenues
was comprised of rate increases for Elizabethtown and Mount
Holly, as discussed above for Mount Holly and at Economic
Outlook for Elizabethtown, which were offset by a decrease in
water consumption due to unusually cool, wet summer weather in
1996. The reduction in water consumption accounted for a
decrease in revenues of $2.4 million. Operating revenues
increased by $3.9 million and $.5 million for the effects of the
increases in rates of Elizabethtown and Mount Holly,
respectively. 

   Operating Revenues increased $6.4 million, or 6.2%, in 1995. 
Of this increase, $4.6 million relates to a rate increase,
effective February 1995.  Increased consumption by retail
customers and an increase in the number of customers increased
revenues by $1.4 million.  Revenues from industrial customers
resulting from consumption increased $.2 million, while revenues
from other water systems resulting from consumption decreased
$.2 million.  Revenues from fire service customers increased $.4
million.  

   Operation Expenses increased $.7 million or 1.5% in 1996 over
the comparable 1995 amount. Operation expenses  decreased by $.4
million for certain variable expenses asscociated with the
reduction in  water consumption discussed above. The successful
implementation of an energy conservation program in the second
quarter of 1996 at our Raritan-Millstone Treatment Plant reduced
energy costs by $.8 million. The success of various safety
programs resulted in a decrease in workers compensation premiums
of $.3 million. These decreases were offset by increased labor
costs of $1.6 million.

    Operation Expenses increased $2.8 million, or 6.7%, in 1995.
 The increase is due, primarily, to increased costs for labor,
benefits and the cost of purchased water calculated in
accordance with a Purchased Water Adjustment Clause.  Benefit
costs increased due to increases in the actuarially calculated
pension expense and the cost of postemployment benefits, a
portion of which was expensed in 1995 as it is recognized in
rates pursuant to the 1995 Stipulation effective February 1995.

    Maintenance Expenses increased $.1 million or .9% in 1996
over the comparable 1995 amount. The Company is realizing the
benefits of various preventive maintenance programs and
operating efficiencies instituted in the current and prior years.

    Maintenance Expenses decreased $.8 million, or 12.4%, in
1995.  The decrease is due, primarily, to the absence in 1995 of
the unusually harsh winter weather that occurred in 1994.  Also,
the results of preventive maintenance programs have contributed
to an overall decrease in maintenance expenses.        

    Depreciation Expense increased $1.1 million or 12.3% in 1996
as compared to 1995.  The increase is due, primarily, to a
higher level of depreciable plant in service and includes $.5
million of depreciation expense for the Plant for a portion of
the year.

    Depreciation Expense increased $.9 million, or 12.1%, in
1995 due, primarily, to additional depreciable plant being
placed in service during that period.  Also, an increase in
authorized depreciation rates as a result of the 1995
Stipulation, effective February 1995, accounted for $.4 million
of the increase.   

    Revenue Taxes increased $.2 million, or 1.7% in 1996 and $.8
million, or 6.6% in 1995 due to additional taxes on the higher
revenues discussed above.

    Real Estate, Payroll and Other Taxes increased $.1 million
or 3.5% in 1996 and $.1 million, or 2.4%, in 1995 due to
increased payroll taxes resulting from labor cost increases.

    Federal Income Taxes as a component of operating expenses
decreased $.8 million or 10.8% from the comparable 1995 amount
due to the changes in the components of taxable income discussed
herein.

    Federal Income Taxes increased $.8 million, or 12.4%, in
1995 due to changes in the components of taxable income
discussed herein.  Contributing to the increase in 1995 is $.2
million for the remaining effect on federal income taxes of the
settlement with the Internal Revenue Service from an audit of
the Corporation's tax returns.  In addition, in 1995 the
Corporation received tax refunds related to the years 1984 and
1985 of $.1 million.  

    Other Income (Expense) increased $.7 million or 31.0% as
compared to the 1995 amount.  An increase in the equity
component of AFUDC of $.7 million, primarily from the
construction of the Plant ,as well as a decrease from
write-downs in 1995 of  the carrying value of certain
non-utility property, accounted for the overall increase.

    Other Income increased $2.0 million in 1995 due, primarily,
to an increase in the equity component of AFUDC of $1.8 million
and a non-recurring litigation settlement in 1994.

   Total Interest Charges increased $1.6 million or 13.8% in
1996 over the comparable 1995 amount. The increase is due,
primarily, to increased interest on long-term debt due to the
issuance of $40.0 million of NJEDA tax-exempt debentures in
December 1995 to refinance balances previously incurred under
the revolving credit agreement.  A higher level of short-term
borrowings under the revolving credit agreement incurred to
finance Elizabethtown's capital program on an interim basis has
also contributed to the overall increase. This increase was
offset by an increase in the debt component of AFUDC resulting
from Elizabethtown's higher construction work in progress
balances in 1996, primarily due to the Plant.

    Total Interest Charges increased $.5 million, or 4.6%, in
1995 due, primarily, to an increase in interest expense of $2.1
million on increased borrowings under Elizabethtown's revolving
credit agreement to finance the Company's ongoing capital
program, the largest component of which is the Plant.  This
amount was offset by an increase in  the debt component of AFUDC
of $1.6 million, also primarily related to the construction of
the Plant.   In addition, in 1995 the Corporation received
interest on tax refunds related to 1984 and 1985 of $.1 million.
 



ECONOMIC OUTLOOK

Forward Looking Information

    Certain information included in this report contains, and
other materials filed or to be filed by the Corporation with the
Securities and Exchange Commission (as well as information
included in oral and written statements made or to be made by
the Corporation) contain or will contain forward looking
statements within the meaning of the Securities Acts of 1933 and
1934, as amended. Any forward looking information is or will be
based on information available at that time and is or will be
subject to risks and uncertainties that could cause actual
results to differ materially from those expressed in the
statements.



E'town Corporation and Subsidiaries

    Consolidated earnings for E'town for the next several years
will be determined by (i) Elizabethtown's ability to increase
sales and to further control operating expenses through improved
productivity, (ii) Mount Holly's, and later Elizabethtown's,
ability to obtain adequate and timely rate relief in connection
with future utility plant additions and, to a lesser degree,
(iii) the ability of E'town and Properties to generate returns
from their unregulated businesses. E'town expects earnings and
earnings per share to increase approximately 15% in 1997 as
Elizabethtown realizes the full impact of its $21.8 million rate
increase effective in October 1996, in addition to realizing the
benefits of ongoing cost control efforts. This expectation
assumes a return to normal weather conditions in 1997.



Elizabethtown and Subsidiary - Regulated Utilities

     On October 25, 1996, a rate increase under a stipulation
(1996 Stipulation) went into effect for Elizabethtown. This will
result in an increase in annual operating revenues of $21.8
million. The rate increase reflects a full allowance for the
estimated capital and operating costs for the Plant and an
authorized rate of return on common equity of 11.25%. Recovery
of depreciation expense on Contributions in Aid of Construction
and Customers' Advances for Construction is not reflected in the
rate increase. Furthermore, under the terms of the 1996
Stipulation, the Company will not be required to record such
depreciation expense of approximately $.7 million annually, for
the period that this rate increase is in effect. The 1996
Stipulation also allows the Company to continue to defer the
transition obligation and interest associated with
postretirement benefits.

     Elizabethtown, excluding Mount Holly, earned a rate of
return on common equity of 9.0% in 1996. Elizabethtown's
authorized rate of return on common equity is currently 11.25%.
In 1997, Elizabethtown expects to substantially close this gap
between its earned return on common equity in 1996 and its
authorized return. This assumes a return to normal summer
weather conditions and outdoor water use. Realizing rates of
return in 1998 comparable to authorized levels will require
continued customer additions and the success of ongoing cost
control efforts, as well as rate relief later in that year.

    Mount Holly earned a rate of return on common equity of 3.5%
in 1996, compared to an authorized rate of return of 11.25%
established in its most recent rate proceeding. Mount Holly
contributed $.02 to E'town's consolidated earnings per share in
1996. Management expects Mount Holly to increase its
contribution to E'town's earnings per share by obtaining
additional rate relief so that Mount Holly can realize rates of
return comparable to authorized levels upon the completion of
Mount Holly's Mansfield project, and recovery of the costs of
that and other projects in rates.





E'town and Properties 

     The activities of E'town and Properties are not regulated
by the BPU.

E'town

     Following a competitive selection process, Edison Township
chose to negotiate with E'town for a 20-year contract to operate
the Township's water supply system. This system serves about
11,000 residential, commercial and industrial customers. The
partners have completed negotiations. The transaction still
requires municipal and state agency approvals. E'town expects to
realize a return on its investment in the project comparable to
that realized by E'town's regulated utility operations. The
earnings effect is expected to be small during the first few
years and is expected to increase after year five.

    In order to form AWM, in 1995 the Corporation entered into a
three-year joint venture agreement with Applied Wastewater
General Partnership (AWG) a unit of several privately held and
affiliated companies providing design, engineering, construction
and operating services for water and wastewater facilities. AWM
has been pursuing opportunities to design, finance, engineer,
construct, own, operate and/or sell water and wastewater
facilities for municipal and corporate clients, primarily in New
Jersey. E'town has agreed to provide capital contributions to
AWM of up to $.5 million to finance AWM's working capital needs.
E'town may provide additional financing for particular projects
of AWM. AWG has been providing the substantial portion of the
operations-related services required to be performed by AWM.
Either party may terminate the agreement at any time. E'town
formed AWM to expand its range of services to include
wastewater, particularly to the smaller communities that
surround the franchise areas of Elizabethtown and Mount Holly.

    On January 1, 1997, AWM commenced a three-year contract to
operate the wastewater collection and treatment facilities owned
by Environmental Disposal Corporation (EDC), which serves
portions of Bedminster, Far Hills, and Peapack-Gladstone. AWM is
also providing the billing and customer inquiry services. AWM
has also negotiated letters of understanding with two developers
whereby AWM will construct wastewater collection and treatment
facilities to serve developments in Morris and Bergen counties.
Each developer will pay the associated construction costs.
Subsequently, AWM will repurchase the facilities, for a nominal
amount, and operate the systems as regulated utilities. 

   Included in Non-Utility Property and Other Investments at
December 31, 1996 is an investment of $1.2 million ($.2 million
net of related deferred taxes) in a limited partnership that
owns Solar Electric Generating System V (SEGS), located in
California. SEGS contributed $.01 to E'town's consolidated
earnings per share and paid cash dividends to E'town of $.3
million in 1996.



Properties

     E'town Properties and E'town Corporation own various
parcels of undeveloped land in New Jersey carried as investments
of $12.8 million in Non-Utility Property and Other Investments -
Net in the Consolidated Balance Sheets of E'town at December 31,
1996. During the next few years, E'town and Properties will seek
to sell such properties and expect to invest the sale proceeds
into water and wastewater utility investments that produce a
current return. 

     Properties has executed a contract to sell one parcel for a
price of $.4 million. The contract is expected to close in 1997
and produce a minimal gain. Properties executed a contract to
sell another parcel to a developer. The parties expected that
the contract would close prior to December 31, 1996 but the
developer was unable to obtain the required municipal approvals.
The contract has been extended and Properties and the developer
have commenced litigation against the municipality. It is not
known whether or when a sale will be consummated.

     The carrying value of each parcel includes the original
cost plus any real estate taxes, interest and, where applicable,
direct costs capitalized while rezoning or governmental
approvals are or were being sought. Such costs are capitalized
until the property is offered for sale, after which time such
costs are expensed. Based on independent appraisals received at
various times prior to 1996, the estimated net realizable value
of each property exceeds its respective carrying value as of
December 31, 1996.

     E'town will continue to monitor the relationship between
the carrying and net realizable values of its properties through
updated appraisals, when appropriate, and of its investment in
SEGS based on information provided by SEGS management.



New Accounting Pronouncements

    See Note 2 of the Notes to Consolidated Financial Statements
for a discussion of two new accounting standards that were
effective in 1996.


<TABLE>
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
<CAPTION>
                                                                           Year Ended December 31,
                                                                      1996           1995           1994

<S>                                                              <C>            <C>            <C>
Operating Revenues                                               $ 110,409,378  $ 108,398,105  $ 102,032,505
                                                                 -------------  -------------  -------------
Operating Expenses:
  Operation                                                         44,806,856     44,148,007     41,373,842
  Maintenance                                                        5,859,167      5,805,511      6,623,772
  Depreciation                                                       9,893,391      8,808,169      7,860,180
  Revenue taxes                                                     13,819,646     13,591,212     12,748,161
  Real estate, payroll and other taxes                               2,952,219      2,853,169      2,786,746
  Federal income taxes (Note 3)                                      6,790,979      7,611,389      6,768,887
                                                                 -------------  -------------  -------------
        Total operating expenses                                    84,122,258     82,817,457     78,161,588
                                                                 -------------  -------------  -------------
Operating Income                                                    26,287,120     25,580,648     23,870,917
                                                                 -------------  -------------  -------------
Other Income (Expense):
  Allowance for equity funds used during construction (Note 2)       3,725,234      2,976,290      1,178,133
  Write-down of non-utility property and 
   other investments (Note 7)                                                        (350,319)      (481,754)
  Litigation settlement                                                                             (932,203)
  Federal income taxes (Note 3)                                     (1,569,962)    (1,141,771)      (138,970)
  Other - net                                                          760,373        741,397        632,878
                                                                 -------------  -------------  -------------
        Total other income (expense)                                 2,915,645      2,225,597        258,084
                                                                 -------------  -------------  -------------
Total Operating and Other Income                                    29,202,765     27,806,245     24,129,001
                                                                 -------------  -------------  -------------
Interest Charges:
  Interest on long-term debt                                        13,799,531     11,696,183     11,610,777
  Other interest expense - net                                       2,645,262      2,389,684        470,038
  Capitalized interest (Note 2)                                     (3,523,724)    (2,746,128)    (1,247,666)
  Amortization of debt discount and expense-net                        395,428        357,973        354,062
                                                                 -------------  -------------  -------------
        Total interest charges                                      13,316,497     11,697,712     11,187,211
                                                                 -------------  -------------  -------------
Income Before Preferred Stock Dividends of Subsidiary               15,886,268     16,108,533     12,941,790
Preferred Stock Dividends                                              813,000        813,000        854,047
                                                                 -------------  -------------  -------------
Net Income                                                       $  15,073,268  $  15,295,533  $  12,087,743
                                                                 =============  =============  =============
Earnings Per Share of Common Stock (Note 2):
   Primary                                                       $        1.96  $        2.16  $        1.95
                                                                 =============  =============  =============
   Fully Diluted                                                 $        1.96  $        2.14  $        1.94
                                                                 =============  =============  =============
Average Number of Shares Outstanding for
   the Calculation of Earnings Per Share:
   Primary                                                           7,674,400      7,095,183      6,210,409
                                                                 =============  =============  =============
   Fully Diluted                                                     7,966,107      7,393,796      6,519,352
                                                                 =============  =============  =============
Dividends Paid Per Common Share                                  $        2.04  $        2.04  $        2.04
                                                                 =============  =============  =============
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>



<TABLE>
E'TOWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
                                                                                       
                                                                                 December 31,
                                                                      1996                          1996
<S>                                                              <C>                           <C>
Assets                                                              

  Utility Plant-At Original Cost:
   Utility plant in service                                      $ 654,712,533                 $ 502,572,255
   Construction work in progress                                     7,994,186                   100,212,636
                                                                 -------------                 -------------
         Total utility plant                                       662,706,719                   602,784,891
   Less accumulated depreciation and amortization                  102,682,572                    94,926,413
                                                                 -------------                 -------------
         Utility plant-net                                         560,024,147                   507,858,478
                                                                 -------------                 -------------

Non-utility Property and Other Investments - Net (Note 7)           14,112,969                    13,601,191
                                                                 -------------                 -------------

Current Assets:
   Cash and cash equivalents                                         3,228,167                     4,925,400
   Short-term investments                                               30,622                        30,622
   Customer and other accounts receivable
    (less reserve: 1996, $566,000; 1995, $532,000)                  16,187,426                    15,984,043
   Unbilled revenues                                                 9,356,122                     7,443,656
   Materials and supplies-at average cost                            2,044,748                     1,912,015
   Prepaid insurance, taxes, other                                   3,917,698                     1,874,338
                                                                 -------------                 -------------
         Total current assets                                       34,764,783                    32,170,074
                                                                 -------------                 -------------

Deferred Charges (Note 9):
   Prepaid pension expense (Note 12)                                    13,254                       512,691
   Waste residual management                                         1,064,454                       970,182
   Unamortized debt and preferred stock expenses                     9,507,531                     9,938,130
   Taxes recoverable through future rates (Note 3)                  30,434,909                    26,427,627
   Postretirement benefit expense (Note 12)                          3,465,272                     2,900,569
   Other unamortized expenses                                        1,820,028                       777,173
         Total deferred charges                                     46,305,448                    41,526,372
                                                                 -------------                 -------------
             Total                                               $ 655,207,347                 $ 595,156,115
                                                                 =============                 =============
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>



<TABLE>
E'TOWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
                                                                                 December 31,
                                                                      1996                          1995

<S>                                                              <C>                           <C>
Capitalization and Liabilities                                     

Capitalization (Notes 4 and 5):
   Common shareholders' equity                                   $ 183,512,357                 $ 177,080,580
   Cumulative preferred stock                                       12,000,000                    12,000,000
   Long-term debt - net                                            193,481,425                   193,673,528
                                                                 -------------                 -------------
         Total capitalization                                      388,993,782                   382,754,108
                                                                 -------------                 -------------

Current Liabilities:
   Notes payable - banks (Note 6)                                   69,000,000                    27,000,000
   Long-term debt - current portion (Note 4)                            30,000                        30,000
   Accounts payable and other liabilities                           16,197,203                    16,826,104
   Customers' deposits                                                 300,561                       305,349
   Municipal and state taxes accrued                                13,886,634                    13,661,620
   Federal income taxes accrued (Note 3)                                                             150,735
   Interest accrued                                                  3,482,657                     3,268,134
   Preferred stock dividends accrued                                    59,000                        59,000
                                                                 -------------                 -------------
         Total current liabilities                                 102,956,055                    61,300,942
                                                                 -------------                 -------------

Deferred Credits:
   Customers' advances for construction                             43,636,080                    45,460,749
   Federal income taxes (Note 3)                                    75,942,114                    66,825,738
   State income taxes                                                  184,722                       173,365
   Unamortized investment tax credits                                8,244,937                     8,448,811
   Accumulated postretirement benefits (Note 12)                     3,651,002                     2,939,217
                                                                 -------------                 -------------
         Total deferred credits                                    131,658,855                   123,847,880
                                                                 -------------                 -------------

Contributions in Aid of Construction                                31,598,655                    27,253,185
                                                                 -------------                 -------------

Commitments and Contingent Liabilities (Note 11)
                                                                 -------------                 -------------
             Total                                               $ 655,207,347                 $ 595,156,115
                                                                 =============                 =============
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>



<TABLE>
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
<CAPTION>
                                                                                 December 31,
                                                                      1996                          1995

<S>                                                              <C>                           <C>
E'town Corporation:
 Common Shareholders' Equity (Notes 4 and 5):
  Common stock without par value, authorized, 15,000,000 shares,
   issued 1996, 7,807,751 shares; 1995, 7,549,078 shares         $ 145,660,545                 $ 138,667,930
   Paid-in capital                                                   1,315,025                     1,315,025
   Capital stock expense                                            (5,159,834)                   (5,159,834)
   Retained earnings                                                42,433,905                    42,994,743
   Less cost of treasury stock; 1996 and 1995, 25,876 shares          (737,284)                     (737,284)
                                                                 -------------                 -------------
       Total common shareholders' equity                           183,512,357                   177,080,580
                                                                 -------------                 -------------
 Elizabethtown Water Company:
  Cumulative Preferred Stock (Note 4):
     $100 par value, authorized, 200,000 shares; $5.90 series,
      issued and outstanding, 120,000 shares                        12,000,000                    12,000,000
                                                                 -------------                 -------------
  Cumulative Preferred Stock:
     $25 par value, authorized, 500,000 shares; none issued

 Long-Term Debt (Note 4):
    E'town Corporation:
       6 3/4% Convertible Subordinated Debentures, due 2012         11,548,000                    11,751,000

    Elizabethtown Water Company:
       7.20% Debentures, due 2019                                   10,000,000                    10,000,000
       7 1/2% Debentures, due 2020                                  15,000,000                    15,000,000
       6.60% Debentures, due 2021                                   10,500,000                    10,500,000
       6.70% Debentures, due 2021                                   15,000,000                    15,000,000
       8 3/4% Debentures, due 2021                                  27,500,000                    27,500,000
       8% Debentures, due 2022                                      15,000,000                    15,000,000
       5.60% Debentures, due 2025                                   40,000,000                    40,000,000
       7 1/4% Debentures, due 2028                                  50,000,000                    50,000,000

  The Mount Holly Water Company:
       Notes Payable (due serially through 2000)                        87,500                       117,500
                                                                 -------------                 -------------
           Total long-term debt                                    194,635,500                   194,868,500
       Unamortized discount-net                                     (1,154,075)                   (1,194,972)
                                                                 -------------                 -------------
           Total long-term debt-net                                193,481,425                   193,673,528
                                                                 -------------                 -------------
              Total Capitalization                               $ 388,993,782                 $ 382,754,108
                                                                 =============                 =============
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>








<TABLE>
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
<CAPTION>
                                                                               Year Ended December 31,
                                                                      1996           1995           1994


<S>                                                              <C>            <C>            <C>
Common Stock:
    Balance at Beginning of Year                                 $ 138,667,930  $ 114,136,195  $  87,842,657
    Public sale of common stock (1995, 660,000 shares;
     1994, 690,000 shares)                                                         17,737,500     19,147,500
    Common stock issued under Dividend Reinvestment and Stock
      Purchase Plan (1996, 258,673 shares; 1995, 248,846 shares;
      1994, 273,159 shares)                                          6,992,615      6,388,716      7,146,038
    Exercise of stock options (1995, 15,569 shares)                                   405,519
                                                                 -------------   ------------   ------------
    Balance at End of Year                                         145,660,545    138,667,930    114,136,195
                                                                 -------------   ------------   ------------
Paid-in Capital:                                                     1,315,025      1,315,025      1,315,025
                                                                 -------------   ------------   ------------
Capital Stock Expense:
    Balance at Beginning of Year                                    (5,159,834)    (4,286,194)    (3,357,165)
    Expenses incurred for the issuance and sale of common stock                      (873,640)      (929,029)
                                                                 -------------   ------------   ------------
    Balance at End of Year                                          (5,159,834)    (5,159,834)    (4,286,194)
                                                                 -------------   ------------   ------------
Retained Earnings:
    Balance at Beginning of Year                                    42,994,743     42,439,552     43,207,666
    Net Income                                                      15,073,268     15,295,533     12,087,743
    Dividends on common stock (1996, 1995 and 1994, $2.04)         (15,634,106)   (14,740,342)   (12,855,857)
                                                                 -------------   ------------   ------------
    Balance at End of Year                                          42,433,905     42,994,743     42,439,552
                                                                 -------------   ------------   ------------
Treasury Stock:
   Balance at Beginning of Year                                       (737,284)      (633,976)      (633,976)
   Cost of shares redeemed to exercise stock options
       (1995, 3,844 shares)                                                          (103,308)
                                                                 -------------   ------------   ------------
   Balance at End of Year                                             (737,284)      (737,284)      (633,976)
                                                                 -------------   ------------   ------------
       Total Common Shareholders' Equity                         $ 183,512,357  $ 177,080,580  $ 152,970,602
                                                                 =============  =============
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>




<TABLE>
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<CAPTION>                                                                               Year Ended December 31,
                                                                      1996           1995           1994
<S>                                                              <C>            <C>            <C>
Cash Flows from Operating Activities:
Net Income                                                       $  15,073,268  $  15,295,533  $  12,087,743
 Adjustments to reconcile net income to net cash
  provided by operating activities:
    Depreciation                                                     9,893,391      8,808,169      7,860,180
    Write-down of non-utility property and other investments                          350,319        481,754
    (Increase) decrease in deferred charges                           (637,690)       248,334       (159,348)
    Deferred income taxes and investment tax credits-net             4,916,577      4,430,998      3,865,417
    Capitalized interest and AFUDC                                  (7,248,958)    (5,722,418)    (2,425,799)
    Other operating activities-net                                     304,730         16,327         19,833
 Change in current assets and current liabilities excluding
   cash, short-term investments and current portion of debt:
     Customer and other accounts receivable                           (203,383)    (3,637,172)      (315,457)
     Unbilled revenues                                              (1,912,466)      (282,173)        86,839
     Accounts payable and other liabilities                           (633,689)    (1,397,022)     8,576,745
     Accrued/prepaid interest and taxes                             (1,754,558)     1,323,420     (1,082,193)
     Other                                                            (132,732)      (187,046)      (101,267)
                                                                 -------------   ------------   ------------
            Net cash provided by operating activities               17,664,490     19,247,269     28,894,447
                                                                 -------------   ------------   ------------
Cash Flows Provided by Financing Activities:
    Decrease in funds held by Trustee for 
       construction expenditures                                                                     382,306
    Proceeds from issuance of common stock                           6,992,615     23,554,787     25,364,509
    Proceed from issuance of debentures                                            40,000,000
    Proceed from issuance of preferred stock                                                      12,000,000
    Redemption of preferred stock                                                                (12,000,000)
    Debt and preferred stock issuance/amortization costs               430,599       (447,922)      (842,178)
    Repayment of long-term debt                                       (233,000)      (452,800)      (374,000)
    Contributions and advances for construction-net                  2,520,801      3,440,942      3,453,604
    Net increase in notes payable - banks                           42,000,000      4,000,000     23,000,000
    Dividends paid on common stock                                 (15,634,106)   (14,740,342)   (12,855,857)
                                                                 -------------   ------------   ------------
          Net cash provided by financing activities                 36,076,909     55,354,665     38,128,384
                                                                 -------------   ------------   ------------
Cash Flows Used for Investing Activities:
    Utility plant expenditures (excluding allowance
    for funds used during construction)                            (55,125,190)   (73,789,288)   (69,980,619)
    Development costs of land (excluding capitalized interest)        (313,442)      (141,954)      (163,976)
                                                                 -------------   ------------   ------------
         Cash used for investing activities                        (55,438,632)   (73,931,242)   (70,144,595)
                                                                 -------------   ------------   ------------
Net (Decrease) Increase in Cash and Cash Equivalents                (1,697,233)       670,692     (3,121,764)
Cash and Cash Equivalents at Beginning of Year                       4,925,400      4,254,708      7,376,472
                                                                 -------------   ------------   ------------
Cash and Cash Equivalents at End of Year                         $   3,228,167  $   4,925,400  $   4,254,708
                                                                 =============  =============  =============
Supplemental Disclosures of Cash Flow Information:
    Cash paid during the year for:
    Interest (net of amount capitalized)                         $   8,965,514  $   8,350,882  $  10,416,716
    Income taxes                                                 $   5,723,350  $   4,746,176  $   6,771,254
    Preferred stock dividends                                    $     708,000  $     708,000  $     805,475

<FN>
See Notes to Consolidated Financial Statements.
        
        
        
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1. Organization

    E'town Corporation (E'town or Corporation), a New Jersey
holding company, is the parent company of Elizabethtown Water
Company (Elizabethtown or Company), E'town Properties, Inc.
(Properties) and owner of a 65% interest in Applied Watershed
Management, LLC (AWM). The Mount Holly Water Company (Mount
Holly) is a subsidiary of Elizabethtown.



2. Summary of Significant Accounting Policies

Basis of Presentation

    The consolidated financial statements include E'town and its
subsidiaries. Significant intercompany accounts and transactions
have been eliminated. Elizabethtown and Mount Holly are
regulated water utilities and follow the Uniform System of
Accounts, as adopted by the New Jersey Board of Public Utilities
(BPU). 

    The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions. These estimates and assumptions
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period.



Utility Plant  and Depreciation

    Income is charged with the cost of labor, materials and
other expenses incurred in making repairs and minor replacements
and in maintaining the properties. Utility plant accounts are
charged with the cost of improvements and major replacements of
property. When depreciable property is retired or otherwise
disposed of, the cost thereof, plus the cost of removal net of
salvage, is charged to accumulated depreciation. Depreciation is
generally computed on a straight-line basis at functional rates
for various classes of assets. The provision for depreciation,
as a percentage of average depreciable property, was 1.73% for
1996, 1.83% for 1995 and 1.75 % for 1994.



Allowance for Funds Used During Construction

    Elizabethtown capitalizes, as an appropriate cost of utility
plant, an Allowance for Funds Used During Construction (AFUDC),
which represents the cost of financing major projects during
construction. AFUDC, a non-cash credit on the Statements of
Consolidated Income, is added to the construction cost of the
project and included in rate base and then recovered in rates
during the project's useful life. AFUDC is comprised of a debt
component (credited to Interest Charges), and an equity
component (credited to Other Income) in the Statements of
Consolidated Income. AFUDC totaled $6,933,870, $5,421,383 and
$2,045,234 for 1996, 1995 and 1994, respectively (see Note 10).



Non-utility Property

    Properties capitalizes direct costs, real estate taxes and
interest costs associated with real estate parcels that are
being developed. These costs are expensed on parcels ready for
their intended use. The amount of interest capitalized for 1996,
1995 and 1994 totaled $315,088, $301,035 and $380,566,
respectively (see Note 7).



Revenues

    Revenues are recorded based on the amounts of water
delivered to customers through the end of each accounting
period. This includes an accrual for unbilled revenues for water
delivered from the time meters were last read to the end of the
respective accounting periods.



Federal Income Taxes

    E'town files a consolidated federal tax return. Deferred
income taxes are provided for temporary differences between the
bases of assets and liabilities for tax and financial statement
purposes for E'towm and Properties. Deferred income taxes are
also provided for each regulated water utility to the extent
permitted by the BPU. The regulated water utilities account for
prior years' investment tax credits by the deferral method,
which amortizes the credits over the lives of the respective
assets. The non-regulated companies utilize the flow-through
method to account for investment tax credits. This method treats
the credits as a reduction of federal income taxes in the year
the credits arise.



Customer Advances for Construction and Contributions in Aid of
Construction

    Customer Advances for Construction (CAC) and Contributions
in Aid of Construction (CIAC) represent capital provided by
developers for main extensions to new real estate developments.
Some portion of CAC is refunded based upon the revenues that the
new developments generate. CIAC are customer advances for
construction that, under the terms of individual main extension
agreements, are no longer subject to refund. As of October 25,
1996, Elizabethtown is no longer recording depreciation on CAC
and CIAC property, in accordance with a rate decision effective
as of that date (See Note 10).



Short-term Investments

    Short-term investments are stated at cost, which
approximates market value.



Earnings Per Share of Common Stock

    Primary earnings per share are computed on the basis of the
weighted average number of shares outstanding, plus common stock
equivalents, assuming all stock options are exercised. Fully
diluted earnings per share assumes both the conversion of the 6
3/4% Convertible Subordinated Debentures and the common stock
equivalents referred to above.



Cash Equivalents

    The Corporation considers all highly liquid debt instruments
purchased with maturities of three months or less to be cash
equivalents.



New Accounting Pronouncements

    The Corporation has adopted Statement of Financial
Accounting Standards (SFAS) 123 "Accounting for Stock-Based
Compensation", which was effective in 1996. SFAS 123 includes
certain elective provisions as to the method of recording
compensation for awards made under the E'town Corporation 1987
Stock Option Plan (Stock Option Plan). The Corporation has
elected to continue to account for its Stock Option Plan using
the method prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and provide
proforma disclosure of the effect of adopting SFAS 123.  The
effect on E'town of adopting SFAS 123 is immaterial.

    The Corporation has also adopted SFAS 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," which was effective in 1996. The statement
requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The
resultant impairment, if any, would be measured based on the
fair value of the asset. The Corporation does not have any
impaired assets.



Reclassification

  Certain prior year amounts have been reclassified to conform
to the current year's presentation.



3. Federal Income Taxes

    The computation of federal income taxes and the
reconciliation of the tax provision computed at the federal
statutory rate (35%) with the amount reported in the Statements
of Consolidated Income follow:



                                    1996            1995            1994
                                        (Thousands of Dollars)                  

Tax expense at statutory rate     $ 8,486          $ 8,701         $ 6,947

Items for which deferred taxes 
 are not provided:                      
  Difference between book and           
   tax depreciation                   132              133              92
  Investment tax credits             (202)            (204)           (209)
  Other                               (55)             123              78
                                  -------          -------         -------
Provision for federal income taxes$ 8,361          $ 8,753         $ 6,908
                                  =======          =======         =======
                        

The provision for federal income     
 taxes is composed of 
  the following:                  
Current                           $ 3,249          $ 6,068         $ 4,983
Tax on main extensions                207           (1,734)         (1,931)
Deferred:                       
 Tax depreciation                   3,333            3,447           3,324
 Capitalized interest               1,375              905             517
 Main cleaning and lining             587              405             396
 Other                               (186)            (136)           (179)
Investment tax credits  - net        (204)            (202)           (202)
                                  -------          -------         -------
Total provision                   $ 8,361          $ 8,753         $ 6,908
                                  =======          =======         =======




    In accordance with SFAS 109, deferred tax balances have been
reflected at E'town's current consolidated federal income tax
rate, which is 35%.

    The tax effect of significant temporary differences
representing deferred income tax assets and liabilities as of
December 31, 1996 and 1995 is as follows:



                                      1996         1995
                                   (Thousands of Dollars)             

Water utility plant - net            $(63,474)      $(56,956)
Non-utility property                       41            139
Other investments                        (878)        (1,022)
Taxes recoverable through 
   future rates                        (9,871)        (9,250)
Investment tax credit                   2,627          2,957     
Prepaid pension expense                    (5)          (166)
Capitalized interest                   (3,777)        (2,402)
Waste residuals                          (373)          (340)
Other assets                              304            654
Other liabilities                        (536)          (440)
                                     --------       --------
Net deferred income tax liabilities  $(75,942)      $(66,826)
                                     ========       ========




4. Capitalization

    In June 1995, E'town issued 660,000 shares of common stock
for net proceeds of $16,863,860. The gross proceeds of
$17,737,500 were used to fund equity contributions to
Elizabethtown totaling $16,900,000. These equity contributions
were used to repay short-term debt that had been issued under
Elizabethtown's revolving credit agreement (see below) to
partially fund the Company's capital program. The balance of the
net proceeds was used to fund working capital requirements of
the Corporation.

    E'town routinely makes equity contributions to Elizabethtown
from the proceeds of common stock issued under E'town's Dividend
Reinvestment and Stock Purchase Plan (DRP). E'town contributed
$5,300,000 and $6,388,716 in 1996 and 1995, respectively, to
Elizabethtown from the proceeds of DRP issuances.

    The Corporation maintains a Shareholders' Rights Plan
(Rights Plan). Generally, under the Rights Plan, if a person or
group acquires 10% or more of the Corporation's common stock or
announces a tender offer for the Corporation's common stock,
non-acquiring shareholders may, under certain circumstances,
exercise rights (Rights) to allow them to significantly increase
their percentage of ownership of the Corporation's common stock.
Such Rights may be redeemed by the Board of Directors.



Cumulative Preferred Stock

    Elizabethtown's $5.90 Cumulative Preferred Stock is not
redeemable at the option of the Company. Elizabethtown is
required to redeem the entire issue at $100 per share on March
1, 2004.



Long-term Debt

    Elizabethtown's long-term debt indentures restrict the
amount of retained earnings available to Elizabethtown to pay
cash dividends (which is the primary source of funds available
to the Corporation for payment of dividends on its common stock)
or acquire Elizabethtown's common stock, all of which is held by
E'town. At December 31, 1996, $7,689,840 of Elizabethtown's
retained earnings were restricted under the most restrictive
indenture provision. Therefore, $34,744,065 of E'town's
consolidated retained earnings were unrestricted.

    In the second quarter of 1997, Elizabethtown expects to
issue $50,000,000 of  tax-exempt Variable Rate Demand Notes,
through the New Jersey Economic Development  Authority (NJEDA). 
The proceeds of the issue are expected tol be used to repay
amounts outstanding under a revolving credit agreement (see Note
6).

    In December 1995, Elizabethtown issued $40,000,000 of 5.60%
tax-exempt debentures through the NJEDA. The proceeds of the
issue were used to repay amounts outstanding under the revolving
credit agreement.

    E'town's 6 3/4% Convertible Subordinated Debentures are
convertible to E'town common stock at $40 per share. At December
31, 1996, 288,700 shares of common stock were reserved for
issuance upon exercise of the conversion rights.



5. Stock Option Plan

     E'town has a Stock Option Plan, a qualified incentive plan
under which options to purchase shares of E'town's common stock
have been granted to certain officers and other key employees at
prices not less than the fair market value at the date of grant.
The Stock Option Plan provides that any options granted may be
exercised at any time up to an expiration date, not to exceed 10
years from the date of each grant.

   A summary of the details of stock option grants and
outstanding balances is presented below:

Year      Options      Option       Options Outstanding     
Granted    Granted      Price      12/31/96     12/31/95     
-------   --------     ------      --------     --------
1989        7,500       $24.67      7,500          7,500
1990        7,500       $26.67      7,500          7,500
1995       77,000       $27.12     77,000         77,000
1996        4,000       $26.87      4,000                   
                                   ------         ------
Total                              96,000         92,000
                                   ======         ======
                   



6. Lines of Credit

    Elizabethtown has a committed revolving credit agreement
(Agreement) with an agent bank and five additional banks. The
Agreement was executed in 1994 to provide up to $60,000,000 in
revolving short-term financing to partially finance
Elizabethtown's capital program, the predominant portion of
which was the Canal Road Water Treatment Plant (Plant) (see Note
10). The Agreement expires in July 1997 at which time the
Company may convert any outstanding balances to a five-year,
fully amortizing term loan.  After July 1997, the Company
expects to meet its short-term financing needs with uncommitted
lines of credit. These lines, together with internal funds and
proceeds of future issuances of debt and preferred stock by
Elizabethtown and capital contributions by E'town, are expected
to be sufficient to finance Elizabethtown's and Mount Holly's
capital needs, which are estimated to be $125,327,000 through
1999. At December 31, 1996, Elizabethtown had outstanding
borrowings of $60,000,000 under the Agreement and $9,000,000 of
borrowings under uncommitted lines of credit. The combined
borrowings were at interest rates of  5.50% to 5.88%, at a
weighted average rate of 5.72%. Of the $60,000,000 outstanding
under the Agreement at December 31, 1996, $50,000,000 is
expected to be repaid  with the proceeds of the Variable Rate
Demand Notes to be issued in the second quarter of 1997 as
discussed in Note 4.

    The Agreement further provides that, among other covenants,
Elizabethtown must maintain a percentage of common and preferred
equity to total capitalization of not less than 35% and a
pre-tax interest coverage ratio of at least 1.5 to 1. As of
December 31, 1996, the percentage of Elizabethtown's common and
preferred equity to total capitalization calculated in
accordance with the Agreement, was 44%. For the 12 months ended
December 31, 1996, Elizabethtown's pre-tax interest coverage
ratio, calculated in accordance with the Agreement, was 2.72 to
1.

    E'town has $20,000,000 of uncommitted lines of credit with
several banks in addition to the lines under the Agreement, of
which $17,000,000 is available to Elizabethtown. Information
relating to bank borrowings for 1996, 1995 and 1994 is as
follows:

                                      1996            1995            1994
                                          (Thousands of Dollars)                  

Maximum amount outstanding         $  69,000       $  60,000       $  23,000
Average monthly amount outstanding $  45,240       $  39,636       $   2,958
Average interest rate at year end       5.7%            5.9%            6.1%
Compensating balances at year end  $       0       $       0        $      0
Weighted average interest rate            
 based on average daily balances        5.8%            6.2%            5.7%





7. Non-Utility Property and Other Investments

    Included in Non-Utility Property and Other Investments at
December 31, 1996 and 1995 is an investment of $1,249,174 and
$1,358,016, respectively, ($186,223 and $259,991 net of related
deferred taxes) in a limited partnership that owns Solar
Electric Generating System V (SEGS), located in California.

    Also included in Non-Utility Property and Other Investments
at December 31, 1996 and 1995 is $12,769,953 and $12,141,419,
respectively, of investments in various parcels of undeveloped
land in New Jersey. The carrying value of each parcel includes
the original cost plus any real estate taxes, interest and,
where applicable, direct costs capitalized while rezoning or
governmental approvals are, or were, being sought. Based upon
independent appraisals received at various times prior to 1996,
the estimated net realizable value of each property exceeds its
respective carrying value as of December 31, 1996.

    Properties continues to make incremental improvements to its
Mansfield, New Jersey property and, accordingly, continues to
capitalize various carrying charges.  In prior years, the
carrying value of the Mansfield property exceeded its estimated
net realizable value. This was due to the fact that the
Mansfield property was not yet ready for its intended use and
various carrying charges were being capitalized while, based
upon prior appraisals, the market value of the property had
remained constant. Charges of $350,319 and $381,754 for the
years ended December 31, 1995 and 1994, respectively, to adjust
the carrying value of the Mansfield property, were reflected in
the Statements of Consolidated Income and Consolidated Balance
Sheets. Properties expects to continue capitalizing carrying
charges on the Mansfield property until it is ready for its
intended use. In October 1995, Properties obtained more
favorable zoning treatment for the Mansfield property. As a
result of the rezoning, an appraisal in 1995 has revealed that
the market value of the property has increased to the extent
that, barring any significant changes in the circumstances
surrounding this property, further adjustments to reduce the
carrying value by the amount of the capitalized carrying charges
are not presently expected.

    The Corporation will continue to monitor the relationship
between the carrying and net realizable values of its properties
through updated appraisals, when appropriate, and its investment
in SEGS based upon information provided by SEGS management and
through cash flow analyses. 

    In 1995, Properties entered into an agreement to sell a
parcel of land to a developer. The agreement intended that the
transaction would close prior to December 31, 1996. The
developer has been unable to obtain approval from the
municipality for an appropriate number of buildable units. It is
uncertain as to whether or not a sale will be consummated.



8. Financial Instruments

    The carrying amounts and the estimated fair values, as of
December 31, 1996 and 1995, of financial instruments issued or
held by the Corporation are as follows: 
                                               
                                         1996           1995
                                        (Thousands of Dollars)            
Short-term investments:                 
  Carrying amount                   $       31       $      31
  Estimated fair value                      45              38
Cumulative preferred stock:             
  Carrying amount                    $  12,000       $  12,000     
  Estimated fair value                  12,000          11,940
Long-term debt:         
  Carrying amount                     $193,481        $193,674
  Estimated fair value                 196,288         200,710


     Estimated fair values are based upon quoted market prices
for these or similar securities.



9. Regulatory Assets and Liabilities

    Certain costs incurred by Elizabethtown and Mount Holly,
which have been deferred, have been recognized as regulatory
assets and are being amortized over various periods as set forth
below:

                                                1996        1995
                                              (Thousands of Dollars)         

Waste residual management                      $ 1,064     $   970
Unamortzed debt and preferred stock expense      8,988       9,385
Taxes recoverable through future rates (Note3)  30,435      26,428
Postretirement benefit expense (Note 12)         3,465       2,901
Safety management expense                          418         302
Business process redesign                          362         235
Rate case expenses                                 201         110
                                               -------     -------
Total                                          $44,933     $40,331
                                               =======     =======




 Waste Residual Management

The costs of disposing of the waste generated by
Elizabethtown's and Mount Holly's water treatment plants are
being amortized and recovered in rates over three and five-year
periods, respectively, for ratemaking and financial statement
purposes. No return is being earned on the deferred balances
related to these programs.



Unamortized Debt and Preferred Stock Expenses

    Costs incurred in connection with the issuance or redemption
of long-term debt have been deferred and are being amortized and
recovered in rates over the lives of the respective issues for
ratemaking and financial statement purposes. Costs incurred in
connection with the issuance and redemption of preferred stock
have been deferred and are being amortized and recovered in
rates over a 10-year period for ratemaking and financial
statement purposes.



Other

     Safety management expenses and business process redesign
expenses were studies undertaken by the Company and are being
amortized and recovered in rates over five years.

     Rate case expenses are being substantially recovered in
rates over two-year periods.

    There were no regulatory liabilities at December 31, 1996 or
1995.



10. Regulatory Matters

Rates

Elizabethtown

    On October 25, 1996, Elizabethtown received a rate increase
under a stipulation (1996 Stipulation) resulting in an increase
in annual revenues of $21,800,000. The rate increase reflects a
full allowance for the estimated capital cost of the Plant of
$100,000,000 in addition to estimated AFUDC of $12,598,151. The
increase also reflects a full allowance for the estimated
operating costs of the Plant.  The Plant  went into service on
October 24, 1996. The total cost of the Plant is estimated to be
$101,554,469 in addition to AFUDC of $13,499,744. The 1996
Stipulation provides that actual costs in excess of the original
estimated cost of $100,000,000 will be considered in future rate
cases. The rate increase also reflects an authorized rate of
return on common equity of 11.25%. Recovery of depreciation
expense on CIAC and CAC is not reflected in the rate increase
and  the Company is no longer required to record, for financial
statement purposes, such depreciation expense of approximately
$700,000 annually, for the period that this rate increase is in
effect. The 1996 Stipulation also allows the Company to continue
to defer the transition obligation and interest associated with
postretirement benefits as well as to continue to recover in
rates the current service cost portion of the obligation for
postretirement benefits. In addition, the 1996 Stipulation
reflects $246,292 for the effect of the Purchased Water
Adjustment Clause, for which a separate petition was filed in
February 1996 and subsequently withdrawn due to the inclusion of
this item in the 1996 Stipulation.

    In February 1995, Elizabethtown received a rate increase
that yielded $5,300,000 in annual revenues as a result of a
stipulation (1995 Stipulation). This Stipulation provided for an
authorized rate of return on common equity of 11.5%. The
increase also provided for recovery of the cost to finance
$62,000,000 of construction projects since rates had last been
established in March 1993 as well as increased costs for power,
labor and benefits, primarily medical.



Mount Holly

    In June 1995, Mount Holly petitioned the BPU for an increase
in rates, to take place in two phases. The first phase was
necessary to recover costs that were not reflected in rates last
increased  in 1986. The second phase would recover the cost of a
new water supply, treatment and transmission system necessary to
obtain water outside a designated portion of an aquifer
currently used by Mount Holly, and to treat and pump the water
into the Mount Holly distribution system. Management believes
this project is the most cost-effective alternative available to
Mount Holly to comply with recent state legislation that
restricts the amount of water that can be withdrawn from an
aquifer in certain areas of southern New Jersey. The project,
referred to as the Mansfield project, is currently estimated to
cost $16,500,000, excluding AFUDC. Mount Holly has expended
$2,855,587 on the Mansfield Project as of December 31, 1996,
excluding AFUDC. The land for the supply and treatment
facilities has been purchased and test wells have been drilled
and can produce the required supply. On October 5, 1995, the New
Jersey Department of Environmental Protection (NJDEP) granted
Mount Holly a water allocation diversion permit for four wells
that are to be the water supply for this project. On October 20,
1995, another water purveyor requested of the NJDEP, and was
subsequently granted, an adjudicatory hearing in opposition to
the permit. Hearings on the matter before an administrative law
judge are pending.  A decision is expected later in 1997. The
Company and Mount Holly believe that the permit in question will
be upheld, but cannot predict with certainty the outcome of the
matter. In the event that the objector is successful and the
permit is rescinded, Mount Holly would meet its regulatory
obligation to provide an alternate source of water by purchasing
water from that purveyor.

    On January 24, 1996, the BPU approved a stipulation (Mount
Holly Stipulation) for an increase in rates of $550,000,
effective as of that date. The Mount Holly Stipulation has,
effectively, concluded the first phase of the rate proceeding.



11. Commitments

    Elizabethtown is obligated, under a contract that expires in
2013, to purchase from the New Jersey Water Supply Authority
(NJWSA) a minimum of 37 billion gallons of water annually.
Effective July 1, 1997, the annual cost of water under contract
will be $7,861,486. The Company purchases additional water from
the NJWSA on an as-needed basis. The total cost of water
purchased from the NJWSA was $8,695,370, $9,344,792 and
$8,987,472 for 1996, 1995 and 1994, respectively.

     The Corporation has committments under long-term leases of
$817,264 for 1997 and $12,330 for 1998. Substantially all of
these committments expire in November 1997. Rent expense totaled
$836,400, $820,481 and $829,562 for 1996, 1995 and 1994,
respectively.

    Capital expenditures through 1999 are estimated to be
$126,149,000, of which $125,327,000 is for Elizabethtown's and
Mount Holly's utility plant and $822,000 is for non-utility
expenditures.



Joint Venture

    In 1995, the Corporation entered into a three-year joint
venture agreement with Applied Wastewater General Partnership
(AWG) to form a New Jersey limited liability company, Applied
Watershed Management, L.L.C. (AWM). AWG is a unit of several
privately held and affiliated companies providing design,
engineering, construction and operating services for water and
wastewater facilities. AWM intends to design, finance, engineer,
construct, own, operate and/or sell water and wastewater
facilities for municipal and corporate clients, primarily in New
Jersey. E'town has agreed to provide capital contributions to
AWM of up to $500,000 to finance AWM's working capital needs.
AWG shall provide the substantial portion of the
operations-related services required to be performed by AWM.
Either party may terminate the agreement at any time.



12. Pension Plan and Other Postretirement Benefits

Pension Plan

    Elizabethtown has a trusteed, noncontributory Retirement
Plan (Plan), which covers most employees. Under the Company's
funding policy, the Corporation makes contributions that meet
the minimum funding requirements of the Employee Retirement
Income Security Act of 1974.   The components of the net pension
costs  for the Retirement Plan are as follows:

                                             1996        1995       1994
                                                (Thousands of Dollars)   

Service cost - benefits earned 
  during the year                        $   1,341     $   929    $  1,068
Interest cost on projected 
  benefit obligation                         2,498       2,170       1,960
Return on Plan assets                       (4,569)     (7,630)        944
Net amortization and deferral                1,229       4,890      (3,881)
                                         ---------     -------    --------
Net pension costs                        $     499     $   359    $     91
                                         =========     =======    ========

    Plan assets are invested in publicly traded debt and equity
securities. The reconciliations of the funded status of the Plan
to the amounts recognized in the Consolidated Balance Sheets are
presented below:


                                             1996          1995
                                         (Thousands of Dollars)   

Market value of Plan assets                $40,257       $ 37,171 
                                           -------       --------
Actuarial present value of Plan benefits:               
Vested benefits                             28,645         26,115
Non-vested benefits                             96            101
                                           -------       --------
Accumulated benefit obligation              28,741         26,216   
Projected increases in compensation levels   7,297          8,005
                                           -------       --------
Projected benefit obligation                36,038         34,221
                                           -------       --------
Excess of Plan assets over projected 
  benefit obligation                         4,219          2,950
Unrecognized net gain                       (4,049)          (636)
Unrecognized prior service cost              1,741            365
Unrecognized transition asset               (1,898)        (2,166)
                                           -------       --------
Prepaid pension expense                    $    13       $    513
                                           =======       ========




    The Corporation also has a supplemental retirement plan for
certain management employees that is not funded. Benefit
payments under this plan are made directly by the Corporation.
At December 31, 1996, the projected benefit obligation of this
supplemental plan was $1,416,802 and the net periodic benefit
cost for 1996 was $254,232.

     The assumed rates used in determining the actuarial present
value of the projected benefit obligations were as follows:

                                    1996            1995            1994

Discount rate                       7.50%           7.00%           8.00%
Compensation increase               5.50%           5.50%           5.50%        
Rate of return on Plan assets       9.00%           9.00%           8.50%   
                             


Other Postretirement Benefits 

   The Corporation provides certain health care and life
insurance benefits for substantially all of its retired
employees. As a result of a contract negotiated in February 1996
with the Company's bargaining unit, all union and non-union
employees retiring after January 1, 1997 will pay 25% of future
increases in the premiums the Company pays for postretirement
medical benefits.

    Under SFAS 106, the costs of postretirement benefits are
accrued for each year the employee renders service, based on the
expected cost of providing such benefits to the employee and the
employee's beneficiaries and covered dependents, rather than
expensing these benefits on a pay-as-you-go basis.

    Based upon an independent actuarial study, the transition
obligation, calculated under SFAS 106, was $7,255,745 as of
January 1, 1993, the date of adoption of SFAS 106. The
transition obligation is being amortized over 20 years.

     The following table details the postretirement benefit
obligation at December 31:

                                                 1996           1995
                                                 (Thousands of Dollars)   

Retirees                                      $  2,015        $  2,404
Fully eligible plan participants                 4,107           6,366
                                              --------        --------
Accumulated postretirement benefit obligation    6,122           8,770
Plan assets at fair value                         (764)           (320)
Unrecognized net gain                            3,964             656  
Unrecognized transition obligation              (5,804)         (6,167)
                                               -------        --------
Accrued postretirement benefit obligation      $ 3,518        $  2,939
                                               =======        ========




    The assumed health care cost trend rate used in measuring
the accumulated postretirement benefit obligation as of December
31, 1996 and for 1996 was 9%. This rate decreases linearly each
successive year until it reaches 3.8% in 2006, after which the
rate remains constant. The assumed rates used in determining the
actuarial present value of the projected benefit obligations
were as follows:


                                      1996        1995        1994
Discount rate                         7.50%       7.00%       8.00%





    A single percentage point increase in the assumed health
care cost trend rate for each year would increase the
accumulated postretirement benefit obligation as of December 31,
1996, and the net postretirement service and interest cost by
approximately $1,222,000 and $188,000, respectively.

    Based upon the independent actuarial study referred to
above, the annual postretirement cost calculated under SFAS 106
is as follows:

                                                 
                                        1996         1995        1994
                                            (Thousands of Dollars)

Service cost - benefits earned           
  during the year                   $    423     $    480      $   376
Interest cost on accumulated            
 postretirement benefit obligation       430          585          596
Return on Plan assets                    (72)           
Amortization of transition obligation    419          363          363
                                    --------     --------      -------
Total                                  1,200        1,428        1,335
Deferred amount for regulated        
 companies pending recovery             (564)        (824)      (1,072)
                                    --------     --------      -------
Net postretirement benefit expense  $    636     $    604      $   263
                                    ========     ========      =======




    The rate increases allowed by the 1996 Stipulation and the
Mount Holly Stipulation include as a recoverable expense the
pay-as-you-go portion of postretirement benefits as well as the
current service cost to the extent such current service cost is
funded. Elizabethtown funded $347,151 in 1996 and $318,222 in
1995. Mount Holly funded $25,045 for 1996. These Stipulations
allow Elizabethtown and Mount Holly to defer the amount accrued
in excess of the portions being recovered in rates for
consideration in future rate filings. As of December 31, 1996,
the amount  that has been deferred is $3,465,272. On January 8,
1997, the BPU issued a generic Order for regulated New Jersey
utilities approving a stipulation related to the implementation
of SFAS 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions". The stipulation developed general
guidelines for mechanisms which would be available for recovery
of costs consistent with SFAS 106. Elizabethtown and Mount Holly
will file for a rate increase in 1997, solely related to the
recovery of SFAS 106 costs, to be effective by January 1, 1998.







13. Quarterly Financial Data (Unaudited)

    A summary of financial data for each quarter of 1996 and
1995 follows:

                                                     Primary      Fully Diluted
              Operating     Operating     Net        Earnings        Earnings
Quarter       Revenues      Income        Income     Per Share      Per Share
-------       ---------     ---------     ------     ---------     ------------
                (Thousands of Dollars Except Per Share Amounts)                                        

1996                                    
1st           $ 25,761     $   5,568    $   3,176     $   .42        $    .42
2nd             27,265         6,355        3,918         .51             .51
3rd             28,173         6,977        4,454         .58             .57
4th             29,210         7,387        3,525         .45             .46
              --------     ---------    ---------      ------         -------
Total         $110,409      $ 26,287    $  15,073      $ 1.96         $  1.96
              ========     =========    =========      ======         =======
1995                                    
1st          $  25,174      $  5,845    $   3,015      $  .45          $  .45
2nd             27,101         6,458        4,175         .61             .61
3rd             30,451         7,873        5,151         .69             .68
4th             25,672         5,405        2,955         .41             .40
             ---------      --------    ---------      ------          ------
Total        $ 108,398      $ 25,581    $  15,296      $ 2.16          $ 2.14
             =========      ========    =========      ======          ======


    Water utility revenues are subject to seasonal fluctuation
due to normal increased water consumption during the third
quarter of each year.


INDEPENDENT AUDITORS' REPORT

To the Shareholders and Board of Directors of E'town Corporation:

We have audited the accompanying consolidated balance sheets and
statements of consolidated capitalization of E'town Corporation
and its subsidiaries as of December 31, 1996 and 1995, and the
related statements of consolidated income, shareholders' equity,
and cash flows for each of the three years in the period ended
December 31, 1996.  These financial statements are the
responsibility of the Company's management.  Our responsibility
is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted
auditing standards.  Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An
audit includes examining, on a test basis, evidence supporting
the amounts and  disclosures in the financial statements.  An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation.  We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
E'town Corporation and its subsidiaries at December 31, 1996 and
1995, and the results of their operations and their cash flows
for each of the three years in the period ended December 31,
1996 in conformity with generally accepted accounting principles.


/s/  Deloitte & Touche LLP

Parsippany, New Jersey
February 19, 1997



</TABLE>
<TABLE>
E'TOWN CORPORATION AND SUBSIDIARIES
OTHER FINANCIAL AND STATISTICAL DATA
<CAPTION>                                                    
                                                    1996        1995        1994        1993        1992
<S>                                             <C>         <C>         <C>         <C>         <C>
Utility Plant (Thousands)
   Utility Plant - net                          $  560,024  $  507,858  $  437,456  $  373,293  $  347,253
   Construction Expenditures (excluding AFUDC)      55,125      73,789      69,981      32,517      33,293
Capitalization (Thousands)
   Shareholders' Equity                            183,512     177,081     152,971     128,374     102,750
   Preferred Stock                                  12,000      12,000      12,000      12,000      12,000
   Debt (1)                                        262,511     220,703     177,115     154,448     161,541
   Total Capitalization                         $  458,023  $  409,784  $  342,086  $  294,822  $  276,291
Capitalization Ratios
   Common Stock                                         40%         43%         44%         44%         37%
   Preferred Stock                                       3%          3%          4%          4%          4%
   Debt (1)                                             57%         54%         52%         52%          9%
Common Stock Data
   Earnings Per Share:
        Primary                                 $     1.96  $     2.16  $     1.95  $     2.59  $     2.21
        Fully Diluted                                 1.96        2.14        1.94        2.54        2.18
   Dividends Per Share                                2.04        2.04        2.04        2.01        2.00
   Book Value Per Share                         $    23.58  $    23.54  $    23.17  $    22.76  $    21.14
   Average Shares Outstanding:
        Primary                                  7,674,400   7,095,183   6,210,409   5,337,939   4,627,814
        Fully Diluted                            7,966,107   7,393,796   6,519,352   5,651,808   4,950,768
Operating Statistics
   Revenues (Thousands)
        General Customers                       $   68,797  $   67,455  $   62,923  $   63,100  $   55,570
        Other Water Systems                         18,929      18,720      18,082      17,187      15,080
        Industrial Wholesale                         7,869       7,947       7,458       6,652       6,044
        Fire Service/Miscellaneous                  14,814      14,276      13,570      13,057      12,473
          Total Revenues                        $  110,409  $  108,398  $  102,033  $   99,996  $   89,167
     Net Income                                 $   15,073  $   15,296  $   12,088  $   13,830  $   10,231
Water Sales - Millions of Gallons (mg)
     General Customers                              22,890      23,999      23,551      23,883      22,062
     Other Water Systems                            15,049      15,569      15,691      15,109      14,118
     Industrial Wholesale                            3,567       3,673       3,568       3,213       3,145
     System Use and Unaccounted For                  6,444       6,402       6,570       5,453       5,843
     Total Water Sales                              47,950      49,643      49,380      47,658      45,168
System Delivery by Source - mg
     Surface                                        41,485      42,646      42,534      40,742      38,558
     Wells                                           6,328       6,764       6,690       6,776       6,480
     Purchased                                         137         233         156         140         130
     Total System Delivery                          47,950      49,643      49,380      47,658      45,168
Millions of Gallons Pumped:
     Average Day                                       131         136         135         131         123
     Maximum Day                                       170         183         182         191         159
General Information
     Meters in Service                             197,791     195,375     191,622     188,677     185,028
     Miles of Main                                   2,899       2,869       2,828       2,800       2,738
     Fire Hydrants Served                           16,012      15,650      15,291      14,909      14,400
     Total Employees                                   400         398         386         384         379
<FN>
(1) Includes long-term debt, notes payable and long-term debt-current portion.
</TABLE>


<TABLE>
Stock Price And Dividend Data - E'town's Common Stock is traded on the 
New York Stock Exchange under the symbol ETW.

<CAPTION>
Quarter-1996     1st       2nd       3rd       4th    
<S>            <C>       <C>       <C>       <C>      
Closing Price                                         
   Low:        $ 27.25   $ 26.50   $ 25.62   $ 28.50  
   High:       $ 30.12   $ 29.37   $ 27.00   $ 31.62  
Dividend Paid  $  0.51   $  0.51   $  0.51   $  0.51  


Quarter-1995
Closing Price                                        
   Low:        $ 24.87   $ 25.37   $ 25.62   $ 27.00
   High:       $ 26.37   $ 27.25   $ 27.00   $ 30.12
Dividend Paid  $  0.51   $  0.51   $  0.51   $  0.51
</TABLE>